Real Estate Business
Ira Gumberg on The Advantages and Challenges of International Real Estate Development
International real estate development is a complex and often challenging field offering many potential benefits for real estate developers, including the opportunity for high returns, access to new markets, and the ability to diversify a portfolio. Such practices reflect ongoing growth in the global real estate market, which, according to recent projects, should eclipse $5209.84 billion by 2027 (at a compound annual growth rate of 7 percent).
However, to effectively leverage this rapidly expanding sector, real estate developers must also be prepared to navigate various potential challenges, including regulatory issues, steep market learning curves, and currency exchange rate fluctuations. Balance, in this sense, is crucial to achieving long-lasting success on the international front.
Here, Pittsburgh real estate leader Ira Gumberg delves deeper into international real estate’s notable pros and cons, discussing how real estate professionals can best approach the market in 2023 and beyond.
Key Considerations for Success
International real estate projects represent several pathways to lasting success – namely, the potential for high returns. By investing in emerging markets, developers can leverage higher growth rates and lower valuations, leading to notable profits. Additionally, international development can provide notable diversification benefits, strengthening a developer’s portfolio in the event of a market downturn.
Another advantage of international real estate development is access to new markets and opportunities. Up-and-coming properties in other countries can help developers expand their customer base, allowing them to tap into new sources of demand. What’s more, international development can provide access to new technologies and construction methods, allowing developers to stay ahead of the curve and gain a competitive advantage.
However, despite these undeniable benefits, international development can also present several significant challenges and risks. For instance, developers may experience setbacks linked to regulatory issues such as unique zoning laws, building codes, and permitting requirements. Such regulations and laws can vary by country, and navigating them can be a complex and time-consuming process warranting vigilance, foresight, and high-level solution ideation.
International developers must also be mindful of cultural considerations and differences, on which their development efforts may have a direct bearing. A country’s distinctive culture, customs, and values can shape a property’s design, market, and overall societal impact. Similarly, currency exchange rate fluctuations can define the profitability of an international project, and developers must carefully manage currency risk and consider the potential for rate fluctuations to impact returns. Failure to take such differences into account can result in projects that fail to resonate or clash with expected norms, needlessly complicating the overall initiative.
Innovating For the Future
To circumvent challenges and ethically bolster their projects’ success, developers can follow several strategies rooted in risk management and return maximization. One vital method is to work with local partners who deeply understand the local market and culture. These individuals or entities can provide valuable insight into local regulations, customs, and consumer preferences, helping developers design projects that resonate with local consumers and keep cultural and societal considerations front-of-mind.
In this vein, developers must also conduct thorough due diligence before investing in a new market. Developers should carefully research local regulations, political factors, and economic trends, as well as the competitive landscape and consumer preferences. Further, they should also focus on building strong relationships with local stakeholders, including government officials, community leaders, and local residents. These connections can help simplify potential regulatory issues and foster communal transparency to augment the project’s positive impact.
International real estate development is an endeavor contingent upon foresight, diligence, morality, and logistical balance. By aligning these characteristics, developers can significantly boost their chances for success and benefit a range of rising markets.